South Korea’s economic growth has been tepid in recent years, with experts calling for drastic measures to shore up sagging productivity and the shrinking working-age population. And a new report highlights the forthcoming crisis: a negative growth from 2042, a mere 19 years from now.
The report, issued by the Economic Research Institute of the Bank of Korea, paints a truly gloomy picture for the country in the 2030s and 2040s unless the country deals with its sluggish productivity and plunging birth rate.
In the report, the most pessimistic scenario projects that Korea’s economy would hit zero growth by 2033, resulting in the average of 0.5 percent for the entire 2030s, and fall to negative growth from 2042, leaving the average at minus 0.3 percent in the 2040s.
A slightly less pessimistic scenario forecasts that the country’s economy would grow some 2.1 percent in the 2020s and around 0.6 percent in the 2030s, before shrinking 0.1 percent in the 2040s.
The negative growth means plenty of headaches for policymakers, businesses and individuals. Even when the BOK projects the economy would grow 1.4 percent for all of 2023, a strong economic momentum is nowhere to be found, with a growing number of businesses struggling to maintain -- not expand -- revenue from a year earlier.
Things are already tough in the 1 percent growth range. And imagine what would happen if the growth rate hits the zero or negative mark in a decade or two?
Negative growth, if realized, is feared to affect a wide range of sectors including jobs, pensions and fiscal income. The impact will be unbearably harsh for many people. Unfortunately, the government won’t find many tools to fix the problems and reverse the trend by then.
The negative assessment was largely based on an assumption that Korea may fail to improve its productivity to make up for a decline in the working-age population.
Cho Tae-hyung, vice head of the institute, said that it is most important to keep productivity growth to mitigate future slowdowns in economic growth. The report also suggests that the country has to secure fresh growth engines by detecting new business opportunities.
To that end, the report says, productivity should be enhanced through digital transformation that utilizes data and artificial intelligence. Other possible solutions could be found in the process of expanding the country’s semiconductor sector’s leadership into system chips, packaging and mobility solutions. Exploring new opportunities in cultural industries such as K-pop, defense and climate crisis-related sectors can also open up new markets, the report suggests.
Search for new growth engines is, of course, crucial. But at the heart of the sluggish growth is South Korea's fertility rate -- the world's lowest. Statistics Korea data shows the average number of children to whom a woman is expected to give birth during her lifetime was 0.7 in the July-September period, down 0.1 from a year ago.
If the birth rate trend continues, the country’s population will fall below 50 million in 10 years and see one third of the population disappear in 50 years. Korea’s serious population problem is now known far beyond the Korean Peninsula. Two months ago, Kurzgesagt, a YouTube channel with some 21.6 million subscribers, put out a video titled “Why Korea is Dying Out,” analyzing the country’s population problem. The video has so far attracted over 7.4 million views.
The BOK report also stresses the importance of tackling depopulation by coming up with a comprehensive set of measures for marriage, childbirth, education and housing for couples.
Time is running out. Policymakers have to deal with a dangerously low fertility rate as well as productivity slump to help the country’s economic growth rate stay at least above the much-dreaded zero range.
